The relevant cost of producing challenger bike is 69.2 plus 5000 one time cost, this cost of 5000 is small enough to be written off in first year. On the basis of calculation made, there is an addition to the gross profit to the extent of 441750.

2. What is the “relevant” cost (on per bicycle basis) of carrying the working capital investment involved in the challenger deal?

3. Should the challenger deal be charged for the lost sales of bikes through the regular distribution channel? If so, what is the relevant erosion charge? Challenger deal should be charged for erosion of lost sales of bike through the regular distribution channel, as it is causing a cannibalization of 3000 unit of bicycles. The revenue for these 3000 bikes is lost. As shown in calculation table above the relevant cost of such lost sales is 3000*43.5, i.e. 130500. 4. Can you estimate incremental return on investment for the challenger deal? Sales| | | |

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...ACCG330 CaseStudy—BaldwinBicycles
Question:
a On the basis of Michael Porter’s(1980) competitive strategies, how does Baldwin currently compete? Justify your answer. (25%)
From the article it seemed that BaldwinBicycle Company competed somewhere between a cost leader and a differentiator.
Baldwin had been a bicycle manufacturer for almost 40 years. The article illustrated that BaldwinBicycle had the image of being above average in quality in price, meaning to say that it was not low cost competitor. Besides, Baldwin had never before distributed its products through department store chains of K-Mart, which is well-known for its low price.
However, no obvious evidence showed that Baldwin had targeted a particular market segment as a differentiator. To begin with, the company seemed trying to attract all range of customers—its product line involved 10 models which targeted from small beginners’ model with training wheels to a deluxe 12 speed adult’s model. Moreover, over a long term operation, BaldwinBicycle seemed not created any superior competitive advantage that could be identified by customers to be apart from its competitors, such as brand loyalty, customer service, product feathers or technology.
Above all,...

...through the BaldwinBicycleCase materials and answer the following questions.
1. Based on the income statement for 1992 and the information in item 5 of exhibit 2 that the company sold 98,791 bicycles for 1992, how much was the average per unit sales price, average per unit cost of sales, and average gross margin per bicycle
2. If the yearly fixed manufacturing overhead costs ofBaldwin are $1,500,000, and the total cost of sales are as listed in the 1982 income statement, what is the amount of total manufacturing costs that are variable?
3. What are the variable manufacturing costs per unit for the standard Baldwinbicycle?
4. What is the per unit contribution margin (sales price -variable costs) of the standard Baldwinbicycle. Assume that $5 per unit of selling costs are variable?
5. What is the current breakeven point (pre-tax) for BaldwinBicycles given its existing cost structure assuming that $1.5 million of manufacturing overhead is fixed and all selling and general and administrative costs are fixed (except for the $5 per unit of selling costs that are variable?
6. Based on the average per unit costs of the Challenger, as discussed in...

...industry. Also, good co-operation experience and rapport with world fashion indicator.
Threats
1. Aggressive competition from the competitors who targeting the same market segments. For example, although its professional makeup brands such as M.A.C and Bobbi Brown face little competition due to the specialized clientele.
2. Changed of spending atmosphere and pattern of the luxury goods’. many of white collar or so called well paid office ladies/ executives have been retrenched or paid cut thus switched their preferential to middle or low cost products.
3. Competitive pricing of other similar effect or substitute products, almost 60% price lower coupled with threats of counterfeit or imitation products.
4. Internet security threat on its e-commerce, consumer database and company website.
5. Rise in energy and raw material prices worldwide, higher costs of global information technology systems and infrastructure, and increase cost of new technique and mode of products testing.
6. Foreign currency fluctuations affecting the Company’s results of operations and the value of its foreign assets.
7. Consolidations, restructurings, bankruptcies, reorganizations and destocking in the retail industry causing a decrease in the number of stores that sells the Companies’ products, leaving it with fewer sales outlets, of which caused the net sales to drop.
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...BaldwinBicycleCaseStudy
1. The relevant costs are those that occur in the future and differ for each feasible alternative. These relevant costs should be compared to the current situation at Baldwin in order to evaluate the decision to join with Hi-Valu:
Per units cost $83.90
R&D Cost (5000/25000) 0.2
Other variable costs** 18.44
Total $102.54
** 5.5% of assets
Added estimate of monthly inventory cost to balance sheet info to estimate avg assets
2 months materials
(25000 bikes/12 mo x 2 mo inv) x 38.90 $165,847
WIP inv (1000 x 83.90) 83900
Finished Goods (500 x 83.90) 41950
Inc to assets 291697
Current assets 8092000
Assets est 8383697
x.055 461103
divided by 25000 bikes 18.44
2. Cost of capital = 18% 102.54
cost per bike times 25000 bikes 25000
2563500
0.18
461430
divide by 25000 bikes $18.46
3. Product cannibalization refers ot the phenomenon whereby a new product......
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...Case Summary:
BaldwinBicycle Company has long history in manufacturing bicycles. Currently, they receive a Challenger deal from Hi-Valu. This proposal contains some special requirements such as to have larger inventory, sell at lower price, and have “Challenger” name on bicycle tires. Suzanne Leister, marketing vice president of BaldwinBicycle Company, is considering whether or not to accept this proposal. The issues are listed below:
The Relevant Cost of Manufacturing a Challenger Bike | Cost analysis |
The Relevant Cost of Working Capital Investments | Relevant cost analysis |
The Relevant Erosion Charge | Profit analysis |
The Incremental Return on Investment | Ratio analysis; incremental ROI |
The Major Cash Flow Implication | Inventory analysis |
Baldwin’s Financial Situation at the end of 1982 | Financial ratio analysis |
Baldwin’s Strategic position at the end of 1982 | Strategic analysis |
1. The “Relevant” Cost of Manufacturing a Challenger Bike
The relevant cost to manufacture a Challenger bike includes the material, labor and the variable production overhead cost. As shown in Exhibit 2 (1), the variable production overhead is about 40 percent of total production overhead, which is $24.50. Even though...

...Q1. What is the "relevant" cost of manufacturing a Challenger bike?
Q4. Can you estimate the incremental return on investment for the Challenger deal?
It is difficult to estimate the incremental return on investment for the Challenger deal due to insufficient information. It would be difficult to predict return due to the uncertainty of customer retention with the implementation of this deal.
Q5. What are the major cash flow implications of the Challenger deal?
Cash flow is a difficult situation currently for Baldwin. It takes the inventory approximately 125 days to turn and then another 46 days to get paid. This is a very long time. The Challenger deal states that they would pay within 30 days. This would help with the current 46 day AR turnover. The contract also keeps inventory days from going over 120 for the Challenger bikes. Both of these help turn assets into cash faster by at least 21 days (approximately 16 + 5). The problem is they don't currently don't have cash to invest in this project, meaning they would need to finance.
Q6. How would you describe Baldwin's financial situation at the end of 1982?
Financially, Baldwin has very high amounts of debt. Most of this is short term debt, which is worse than long term debt.
Comparing the debt to equity we see that there is more debt than there is equity. This is a dangerous position for the firm to be in.
The current ratio indicates they do have enough...

...‘small-batch’ and ‘just-in-time’ production with a Total Quality policy, HACCP, a method internationally developed for diary products. It is similar to ISO 9002 norms in terms of quality procedures, but it requires less paper administration and places more emphasis on the quality of the ingredients used.
Pricing policy and cost structure
Chocolate price is between 65 euros per kilo for truffles and 90 euros per kilo for fine chocolates, bouchées sold in high quality boxes. Chocolate bars price is 3,20 euros per 110g bar. Calissons, soft fruits and pâtes de fruits are sold around 50 euros per kilo. Marrons glacés price is 110 euros per kilo. Labour represents 45% of costs. Over an average production cost of 53,51 euros per kilo: here is the distribution of costs: €24.12 - labour costs including social contributions €12.63 - raw materials €16.76 - retail costs and general costs
Required
The CEO would like to formalize performance indicators for the company and its units: The current tools are mainly based on cost production for the manufacture, and on sales numbers for the stores. The CEO would like the managers to share a more global view on the strategic issues, and propose both financial and non financial indicators. Propose a balanced scorecard for the CEO and the managers.
References
www.puyricard.fr “Les poids lourds de l’économie...

...a(EVA®), return on investment
Revenue and cost measures: Revenue growth, revenues from new products, cost reductions in key areas
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Market share, customer satisfaction, customer-retention percentage, time taken to fulfill customers’
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Internal-Business-Process Perspective
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development times, and number of new patents
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Postsales Service Process: Time taken to replace or repair defective products, hours of customer training
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